DSO Ratio
Encyclopedia
DSO ratio, or days sales outstanding ratio, or days' sales outstanding ratio, is a financial ratio
that illustrates how well a company's accounts receivable
s are being managed.
A DSO ratio can be expressed as:
For purposes of this ratio, a year is considered to have 365 days.
As with all financial ratios, a company's DSO ratio should be considered alongside others in its industry. Examining the DSO ratio as it changes over time can often point out trends. Generally speaking, though, higher DSO ratio can indicate a customer base with credit problems and/or a company that is deficient in its collections activity. A low ratio may indicate the firm's credit policy is too rigorous, which may be hampering sales.
Financial ratio
A financial ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization...
that illustrates how well a company's accounts receivable
Accounts receivable
Accounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...
s are being managed.
A DSO ratio can be expressed as:
- DSO ratio = accounts receivable / average sales per day, or
- DSO ratio = accounts receivable / (annual sales / 365 days)
For purposes of this ratio, a year is considered to have 365 days.
As with all financial ratios, a company's DSO ratio should be considered alongside others in its industry. Examining the DSO ratio as it changes over time can often point out trends. Generally speaking, though, higher DSO ratio can indicate a customer base with credit problems and/or a company that is deficient in its collections activity. A low ratio may indicate the firm's credit policy is too rigorous, which may be hampering sales.